United States: Estate Planning Update - July 2015

ARE YOUR AFFAIRS IN ORDER?

Have you ever been asked, "are your affairs in order?"
Have you wondered what that question really means? Have you
considered what you can do to ease the burden on loved ones who
will be tasked with handling your estate or providing support in
the event of your incapacity? If you answered "yes" to
any of these questions, here are 10 suggestions for organizing your
affairs and easing burdens going forward.

Estate Planning
Documents: When was the last time your documents had a
tune-up? If it has been several years, request that we complete a
quick review to confirm that your will and trusts reflect your
current goals. Documents should keep pace with the changes in your
life (births, deaths, marriages, divorces and significant changes
in wealth) and with changes in the tax law. Updated documents will
enable your executor or personal representative (and trustees) to
carry out your wishes.

Incapacity
Documents: With increasing frequency, financial
institutions and health care providers are reluctant to accept and
rely on "stale" powers of attorney and health care
directives. Refreshing these documents at least every five years
will help ensure that your attorney-in-fact and healthcare
representative or proxy are able to assume their roles if
necessary. We also recommend sharing a copy of your healthcare
documents with your loved ones and your physician.

Funding Trusts: If
you have a revocable trust, consider funding it with some or all of
your assets now. This will facilitate handling of your finances if
you become disabled and after your death. It will also avoid public
scrutiny during probate administration in some states. Real estate
not located in your home state is a top candidate for a lifetime
transfer to your revocable trust. This is because keeping it titled
in your individual name will trigger a second "ancillary"
probate in the state where it is located, increasing the costs of
estate settlement. Titling investment accounts in your revocable
trust will help speed up and streamline access to investments after
your death.

Personal Property:
The division of belongings, such as jewelry, is often a source of
conflict in families. Consider leaving a personal property
memorandum to set forth your wishes regarding personal items. For
example, if you are leaving all of your personal property to your
three children under your will but would like a grandchild to
receive your jewelry, prepare a memo to your children that says
this. In some states, these memos are binding. In others, they
simply express your wishes.

Original Documents:
If Day Pitney does not hold your original documents, make sure that
we know where they are located and that someone is able to access
them when needed. a post-death court order may be necessary to open
a safe deposit box if there is no joint owner. A delay in filing
your original will slow the appointment of your executor or
personal representative.

Beneficiary
Designations: Review the primary and contingent
beneficiary designations for your IRAs, 401(k)s, annuities and life
insurance policies to confirm that they dovetail with your estate
planning documents. Outdated designations directing property to a
former spouse, a deceased parent or a revoked trust can torpedo an
otherwise well-drafted estate plan. Consider whether any minor
children or disabled family members could become beneficiaries, and
speak to us about the possible repercussions.

"Paperless"
Assets: The "greener" you become, the more
challenging it may be for your executor to identify your assets.
gone are the days when an executor can expect to find paper copies
of all bank and investment statements to identify accounts and
contacts at each financial institution. In addition, assets today
include more than just bank accounts, with airline miles, credit
card points and some social networking sites having real value.
Consider making a list of all your accounts and keeping it in a
sealed envelope in your home safe or safe deposit box and make sure
access is available to a joint owner).

Passwords: If your
asset information is only accessible electronically, it may be
difficult for your attorney-in-fact to step in and immediately
begin to manage your financial affairs in an emergency. Although
your online passwords and login information should be kept
confidential, consider leaving a complete list in a sealed envelope
in your home safe or safe deposit box (to which access is available
to a joint owner).

Pets: Make plans for
the short-term emergency care of your pets if you are hospitalized,
and for their long-term care after your death. Bequests of pets
coupled with bequests of cash for their care or "pet
trusts" are increasingly common.

Share: Only you can
decide whether and when to share your estate plan with your loved
ones. even if you choose not to disclose the plan's terms,
providing loved ones with a list of key contacts (including your
attorney) can significantly reduce stress levels in times of
crisis.

NEW CONNECTICUT LEGISLATION

Among the legislation that Connecticut Gov. Dannel P. Malloy
signed on June 30, following a special session of the Connecticut
legislature, were three changes that may be of interest. These
include an increase to the probate court settlement fees for
estates; an increase to income tax rates for individuals, trusts
and estates; and a new cap on a taxpayer's gift and estate tax
liability.

Increased Probate Fees for the Settlement of
Estates

The probate fee for the settlement of an estate applies to all
Connecticut estates regardless of whether probate proceedings are
required. Under the new legislation, which is effective for estates
of decedents who die (or died) on or after January 1, 2015, the top
rate has been increased to .5 percent for estates greater than
$2,000,000 (from a prior top rate of .25 percent). In addition, the
previous $12,500 cap on the probate fee has been eliminated.

These changes will have no effect on the probate fee for estates
under $2,000,000. However, for larger estates, particularly those
over $4,754,000 that would have benefited from the cap under the
previous law, the increase in probate fees may be significant. For
example, under the new law, an estate of $10,000,000 will now pay a
probate court fee of $45,615; an estate of $50,000,000 will now pay
$245,615.

Increased Income Tax Rates for Individual Taxpayers and
Estates and Trusts

The new legislation increased the income tax rates applicable to
individuals earning $250,000 or more ($400,000 for head of
household and $500,000 for married filing jointly) from 6.7 percent
to 6.9 percent and created a new 6.99 percent tax rate for
individuals earning $500,000 or more ($800,000 for head of
household and $1,000,000 for married filing jointly). Likewise, the
flat tax rate on trust and estate income was increased from 6.7
percent to 6.99 percent. The rate increases are retroactive to
January 1, 2015.

Cap on Maximum Estate and Gift Tax Liability

Connecticut imposes both an estate tax and gift tax under a
unified structure. Under the previous law, the total tax that could
be imposed was uncapped. The new law now caps the maximum estate
and gift tax liability for each taxpayer at $20,000,000, effective
for gifts made on or after January 1, 2016, and for estates of
decedents who die on or after January 1, 2016.

PENDING LIMITATIONS ON FAMILY ENTITY DISCOUNTS?

You may have heard about, or perhaps even created, a family
entity such as a family limited partnership or a limited liability
company. Despite growing IRS challenges and scrutiny of
intra-family transfers of family entities, under current law it is
possible to structure a family entity so that the value of a gift
of a minority interest in the family entity is discounted. The
premise is that a 10 percent interest in a family entity is worth
less than the value of 10 percent of the assets in the entity. The
most common discounts are due to lack of control and lack of
marketability. Officials at the Treasury Department and the IRS
recently indicated that they may issue new regulations that further
limit or disallow these and other types of discounts, and that
these new regulations may be issued before mid-September of this
year and may be effective immediately upon issuance.

The primary focus of the IRS in years past has been on family
entities that do not operate an active business - or in other
words, on entities that own passive assets, such as marketable
securities. although the scope of the new regulations is unknown,
estate planning practitioners hope that any new regulations will
contain safe harbors such that active, operating family businesses
are not adversely affected by such regulations. Business succession
planning is obviously an important component of estate
planning.

The takeaway is that if you have a family entity of any type -
whether it is an active family business or an entity holding
passive assets for purposes of centralized family management - and
you are considering transferring additional interests to family
members, we recommend that you contact us to discuss the possible
impact of the pending regulations and to perhaps proceed with any
contemplated transfers before the new rules take effect.

U.S. SUPREME COURT LEGALIZES SAME-SEX MARRIAGE

In June, the U.S. Supreme Court's decision in Obergefell
v. Hodges legalized same-sex marriage nationwide. The Court
concluded that the right of gay couples to be married is enshrined
in both the Due process and equal protection clauses of the
Constitution and that a marriage performed in one state must be
recognized in all others.

Although the Court's 2013 decision in United States v.
Windsor confirmed that a same-sex marriage performed in a
"recognition" state would be honored at the federal level
regardless of where the couple resided, it left some state-level
tax and estate planning questions for LGBT couples unresolved. The
advent of marriage equality across the United States presents a
prime occasion to revisit estate planning and gift strategies.
Please contact us if you would like to review your planning.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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